Extending health care to the uninsured and those who can’t get coverage for pre-existing conditions is the epicenter of Democrats’ health care bills, but achieving that goal requires adding younger, healthier Americans to insurance pools to hold down costs. And achieving coverage for sicker populations comes at a significant price to young Americans, according to a recent report by Rea Hederman and Paul Winfree of Heritage’s Center for Data Analysis.
Two provisions in the bills ensure that those with pre-existing conditions will be able to get coverage at an affordable cost. “Guaranteed issue” requires that insurance companies provide coverage to anyone, regardless of their medical history, and age rating would entail insurance companies charging older or sick customers no more than twice as much (three times as much in Senate bill) as they charge younger enrollees. This guarantees that premiums for the young will increase to subsidize the cost of covering the older and more sickly population.
Increased premiums would inevitably discourage more youth, not less, from purchasing insurance. In order to counter this effect, the bills include provisions to ensure that younger Americans still join the risk pool: an individual mandate to purchase insurance and subsidies to purchase insurance for low and middle-income singles and families.
But, according to Hederman and Winfree, “Unfortunately, trying to fix one flawed policy (the rating restrictions and guaranteed issue requirements) by adding another flawed policy (the mandate and costly subsidies) only makes the policy outcome even worse.”
CDA’s findings echo predictions from the Congressional Budget Office that premiums in the non-group market will increase as a result of the bills. CDA shows these premiums increasing 10 to 13 percent. Rather than encouraging younger Americans to purchase insurance, this will achieve the opposite, thereby increasing premiums for the older and sicker population who must purchase insurance as younger Americans leave the market.
The individual mandate is intended to force youth into the market, but further CDA analysis shows that this will not occur. Instead, most youth will opt out, largely because of the higher premiums that would result from the guaranteed issue and age rating provisions, but also because the penalty for not purchasing insurance would be significantly lower than premiums.
For those to whom the individual mandate will apply and who are eligible for the health exchange, CDA predicts only 12 percent of single uninsured individuals under 35 will purchase insurance. Only 20 percent of families in the same category would bcome insured, and of the uninsured that don’t qualify for subsidies in the exchange, only 5 percent are expected to buy insurance. Altogether, CDA finds that greater than 93 percent of insured households would sooner pay the penalty and than purchase insurance at higher premiums.
As Hederman and Winfree explain, “this quickly becomes a downward cycle as insurance costs increase, which will drive out more and more of those who are less costly to insure. Insurers will have no choice but to raise premiums, as they face paying out far more in benefits to cover a sicker pool…” Clearly, the consequences of Obamacare are disadvantageous for everyone.
